A Federal Tax Lien lowers your credit score and can get in the way of taking advantage of the record low mortgage rates. However, you can still refinance even with a Federal Tax Lien. I am a tax attorney in Minneapolis, MN. I represent taxpayers before the IRS and state tax authorities on issues ranging from tax debt to audit defense to payroll tax issues to criminal tax matters.
A Federal Tax lien can spoil an attempt to sell a house. It can also get in the way of getting a new loan. But, the IRS will subordinate their lien to the new mortgage under certain circumstances. The IRS will give up its position as and let the refinanced mortgage become first if it aids in collection of the tax debt.
If you are doing a cashout refinance, you will need to turn over that money to the IRS. The government will then subordinate to the new mortgage. While this might sound like bad news, it could be the way you solve your problem. If you pay the IRS off, then of course the lien is gone. If it can only partial pay, this lump sum could be used to settle the tax debt. Plus, you still get credit for the new payment when it comes to computing whether an offer-in-compromise or an installment plan is best for you.
Even if you are not taking out money, you can still get the IRS to subordinate their lien. If your payment is going to be lower than the old payment, it stands to reason that this will help you pay more to the IRS. The IRS knows that it is in its best interest for you to become more able to pay. You will need to prove that this new mortgage will make things easier for you to pay though. So, it is often a good idea to seek a resolution of your tax debt at the same time you ask the IRS to subordinate.
If you or someone you know has a tax problem, call me at 763-515-0478, set up an appointment, or email me at firstname.lastname@example.org
Attorney at Law
12800 Whitewater Dr.
Minnetonka, MN 55343